Electricity traders have told BEIS that they need to see a single electricity price to trade power efficiently across interconnectors with Europe, but two exchanges where power is traded, EPEX and NP, are now operating “fully separated” day-ahead markets, settling and clearing at different and independent prices. The change in pricing is a consequence of the delinking of GB pricing from the EU electricity market as the UK left the EU.
Now BEIS is consulting on how to re-couple GB auctions for cross-border trade with the EU at the day-ahead timeframe. The consultation closes on Friday.
Post Brexit trade with the EU electricity market is no longer ‘frictionless’, for example GB traders have to book capacity on interconnectors separately, whereas previously capacity was automatically allocated with a power trade (‘implicit’). The fragmentation of price setting into two exchanges has reduced liquidity and presented other problems for traders especially in longer term contracts.
The problem of differing prices is illustrated by one occasion when the difference in prices in the two GB day-ahead markets was large enough to change the direction of the price differential with the Belgium market (one is positive, the other negative).
“Such differences hamper market participants ability to assess the value of interconnector capacity,” said BEIS in the consultation. It says the lack of a single price for GB electricity traders is likely to undermine trading arrangements in day-ahead markets, particularly at times of system stress, and could make it more difficult to set up effective hedging strategies.
Traders have told BEIS that new arrangements – due to be set up by April 2022 under Brexit agreements – should be completed as soon as possible.
Read the consultation here